A reporter called Tuesday for a retrospective on my forecast of a year ago. I groaned, thinking the headline would be "Gotcha!" but the actual quotes he had weren't so bad. Apparently I said that we had overbuilt housing and that it would take a couple of years at least to work off the excess supply. Boy, that sounds right.
Confirming that is an interesting article from the Wall Street Journal's Real Time Economics which says in 2005 there was a burst of stories about a housing bubble. Here's their chart, based on 50 major daily newspapers and how often stories refer to a housing or real estate bubble. (Hat tip to Arnold Kling at EconLog.)
By the way, the peak month for housing starts was January 2006, so the bubble stories in the press really gave you some lead time. In the fall of 2005 I was titling my economic outlook speeches, "Bubble Trouble?"
The other quote the reporter cited was my statement that there was one chance in four of a recession in the coming year. OK, I wished I had said there would definitely be a recession, but here's what I added to that one chance in four remark:
If you heard that there was one chance in four of your building catching fire, you'd work out evacuation plans and you'd buy insurance. Well, one chance in four of a recession means you should develop a contingency plan for an economic downturn.
I feel good about having said that. So here's the takeaway for business leaders: It's hard for us to get all the details right, but when we economists say there's a bubble, get worried. When we tell you it's time for some contingency planning, get to it.